Russia ditching US Treasuries for gold in bid to protect economy & diversify – analysts to Eyes On Events

Russia has left the top-30 list of top lenders to the United States by radically slashing US Treasury bills ownership. Eyes On Events-polled analysts have shared their opinion on the move.

“Both political and economic reasons could be found here. The Central Bank may have thought that Russia-owned Treasuries could be frozen because of geopolitical tensions. The regulator announced in spring that it plans to diversify its reserves,” said Zhanna Kulakova, financial consultant at TeleTrade.

The analyst thinks the Russian central bank could re-invest the money from the sale into Chinese bonds and gold. “Gold is a tangible asset that can not be completely depreciated under any circumstances. In periods of global financial or political crises, gold will be much more useful than securities or cash,” Kulakova said noting that gold is also prone to price fluctuations from time to time.

Read more

The analyst notes that Russia's liquidation of its US Treasury holdings, has an impact on the dollar. “China, which is the world's largest holder of Treasuries (about $1.2 trillion), can affect the dollar rate and the yield of US bonds. If you sharply dump such a volume of securities on the market, then the dollar rate will be shaken, and the yield on treasure will soar,” she concluded.

Vladimir Rojankovski, an expert at the International Financial Center in Moscow, gives another reason for Russia withdrawing its assets from the US. “They could be frozen by foreign courts based on the results of biased/politicized legal proceedings,” he said.

The analyst also notes that the US Treasuries yield curve is flattening, which makes the notes less attractive for investments. A flattening yield curve is also often regarded as a predictor of a recession.

Rojankovski praises the move by the Russian Central Bank to diversify, but warns that gold price could be manipulated on the market like oil. “In the event of a global decline in the interest of large sovereign investors in US Treasury bonds, I expect an increase in speculative activity in precious metals in order to artificially lower their market valuation,” he said.

For more stories on economy & finance visit Eyes On Events's business section